Right now, all the "congestometers" point to low. That's a good sign for shippers. It means that at eight major U.S. ports, it's "business as usual, with no serious congestion, delay, or diversion of cargo anticipated," according to the key provided in the latest "Port Tracker" report. Port Tracker, a port monitoring service, uses the congestometers (which look something like an automobile's gas gauge) to alert shippers to potential port delays.
But as good as things look now, there's reason to worry. "Looking ahead to the coming 2006 peak season, we see continued challenges to system performance due to continued growth in trade that will start again within the next two months," warns Paul Bingham, an economist with Washington-based Global Insight, an economic research, forecasting and analysis firm.
Bingham heads up Global Insight's Port Tracker program, a subscription service that monitors inbound container volume, rail and truck capacity into and out of the ports, labor conditions, and other factors that could affect cargo movement. Following the ill-starred 2004 holiday shipping season, when ship logjams caused protracted freight backups at U.S. ports, the National Retail Federation commissioned the service to forewarn its members of problems.
Early warning may give shippers peace of mind, but it's no guarantee of trouble-free shipping. "As we must every year, we can expect some shocks to the system," Bingham says, citing the 2005 natural disasters and fuel price spikes as examples.
But natural disasters aren't the only threat to smooth-running port operations. What has the industry really worried is a rising tide of imports (particularly from China) that threatens to overwhelm the already- strained U.S. port and inland transportation infrastructure. Global Insight expects import volumes to rise more slowly this year than last, but Bingham points out that import growth will still outpace the overall economy (as well as any infrastructure development). "That means new record volumes," he says. "Staying in place is not going to cut it."
Looking back at the 2005 peak shipping season, Bingham acknowledges that ports operated much more efficiently than they had a year earlier. "There was nothing on the scale of 2004," he says. That was partly because shippers shifted shipments away from the busy Los Angeles/Long Beach complex, routing them through other West Coast ports like Oakland, Seattle and Tacoma as well as through Savannah, Norfolk and Houston. Those shifts may well become permanent. Some of those ports are aggressively pursuing business, says Bingham, who notes that they're even developing regional distribution centers to attract Asian imports. The ports are likely to find a receptive audience for their pitches. Bingham believes many shippers are redesigning their networks to bring their shipments into the country at ports closer to the goods' destination, rather than simply bringing everything in through LA/Long Beach.
In the meantime, ports themselves are taking steps to ease the congestion. Los Angeles/Long Beach, for example, has expanded its port hours and instituted the OffPeak program, which offers shippers incentives to pick up containers at night or on weekends. So far, it appears to be working. PierPASS, the not-for-profit company that administers the program, says more than a million trucks were diverted from peak traffic periods between July, when the program was launched, and the end of last year.
Still, these measures are just temporary fixes. Diverting freight to other ports and rescheduling loading activity eases the pressure on the busiest facilities, but it doesn't solve the congestion problem. In fact, George Powers, president of American Port Services, which provides trans- loading, deconsolidation, warehousing, and distribution services, warns shippers who plan to shift cargo to East Coast ports that inland infrastructure could be an impediment. "I-95 is congested already," he says of the major north-south highway along the East Coast. "More freight will just add to the problem."
Running out of options
In the meantime, other problems have emerged. Ironically, at a time when ports already face a capacity crunch, ocean lines are putting huge mega-containerships into service. These large vessels, though profitable for the carriers, present operating challenges to ports. Not only do they require special cranes and deeper channels, but larger ships also mean substantial surges in volume—the biggest of these ships carry more than 6,000 TEUs (twenty-foot equivalent units). Furthermore, not all ports can accommodate the large vessels.
Another problem is a shortage of inland transportation capacity. "The railroads were still pretty strained last year," Bingham says. Though Hurricane Katrina may have been partly to blame, Bingham still worries that the railroads will continue to be slow to add capacity.
In the past, shippers have circumvented rail capacity problems by bringing ships through the Panama Canal to ports on the East and Gulf Coasts, which eliminates the need for a cross-country haul. But that may not be an option much longer. A study done last year by London- based Drewry Shipping Consultants concluded that the canal, through which about a quarter of all trans-Pacific freight passes, was already operating in excess of 100 percent of its practical capacity—a level the report's authors termed "unsustainable."
That may ease ... a bit. Drewry expects short-term improvements will add about 10 percent to capacity by next year. There's also been talk of a major canal expansion project, but that won't begin anytime soon. The proposal, which still requires multiple layers of approval, faces ecological, technological and financial obstacles. And if Panama does go ahead with the expansion, Global Insight estimates that canal fees will double over 20 years to pay for the project.
Capacity problems in the canal zone would most likely ripple back to West Coast ports, which means it's doubtful shipping patterns will shift significantly in the near term. "Los Angeles will still be the dominant port," Powers says. "It has ... the location." The location, perhaps, but not the capacity, according to one consultant. The Drewry study warns that the West Coast ports could face a capacity shortage of 1.8 million TEUs as early as 2008. As bad as that sounds, the longer-term outlook is worse: Drewry says the shortage could swell to 6.5 million by 2010.